Syria reaches out for growth

October 9, 2008

Stephen Starr

Sitting in his plush new office in an up-market neighborhood of Damascus, deputy prime minister for economic affairs Abdullah Dardari - the man tipped to be named Syria's next prime minister - is adamant his country is beginning to move with the times.

Until recently viewed as an international pariah, Syria has over the past few months achieved more positive exposure. The latest installment in the reclamation of Syria's reputation saw French President Nicholas Sarkozy visit Damascus in early September. Relations with Lebanon, which have long been a bone of contention for the international community in its dealings with Syria, have improved considerably since last May when

Damascus backed the Doha Accord for Lebanese unity.

Meanwhile, domestic reforms are putting new life into the country's economy, helping to drive real GDP growth up to 6%, according to Dardari.

"Reform of the financial system and the banking and insurance sectors have been our biggest successes," he said.

Until recently, change seemed unlikely. During 30 years of authoritarian rule under Hafez al-Assad, the current president's father, an array of imported goods were banned and a centralized economy ensured deep inefficiencies. Since taking over in 2000, Bashar al-Assad, a British-educated ophthalmologist, has sought significant economic change across the board.

Import duties have been cut, and signs of new wealth and investment are increasingly apparent. A US$500 million luxury city is being built in Yarfour, outside Damascus by the Arab construction giant, Emaar Properties (the company that is also responsible for building the world's tallest skyscraper in Dubai). At a more personal level, mobile Internet technology is now available in smaller cities.

The country's infrastructure is being modernized, with energy company Kharafi Cham recently signing an agreement with the Ministry for Electricity to build a private power plant, and a solar power plant is to be built by Alternergie, a German business, according to Syria Today, a current affairs magazine. Both initiatives represent firsts for Syria.

As the economy grows, unemployment, though still high, is falling, down 3.5% in the past five years to 10%.

The government is also seeking to improve its financial relations with the outside world. The country's external debt stood at $6.6 billion at the end of last year, but debt owed to the Czech Republic and Slovakia has been settled, reports SANA, the state news agency.

In a sign of increasing international engagement and prosperity, two Islamic banking operations have opened in recent months: Cham Bank and the Syrian International Islamic Bank, led by Jordanian businessman Abdul Qader Dweik. Both are private ventures with links to other financial institutions in Kuwait and Qatar.

These are following the path of Bank Audi, a Lebanese bank that moved into the Syrian market in 2005, and Banque Bemo Saudi Fransi. Representing interests from France, Saudi Arabia, Syria and Lebanese bank Byblos, this institution has been established in Damascus for three years and has branches in Aleppo and Homs. Several more foreign banks with international banking capabilities are beginning formalities to open.

New businesses, meanwhile, will soon be able to raise funds on the Damascus stock exchange, which is due to begin operating in 2009.

Overseas interest in the economy is growing, with foreign investment trebling to $9 billion since 2000, with funds particularly going into the chemical and pharmaceutical industries.

Even so, the key oil and gas sector, which contributes a quarter of Syria's GDP, is suffering from declining production as oil fields dry up. State-owned refineries pumped 610,000 barrels out of the ground every day in 1995. Today, that is down to 350,000 barrels a day, with slightly less than half going to export. Meanwhile, consumption is soaring.

In a move that may improve output, Chinese oil giant Sinopec has bought out a Canadian firm's oil exploration interests in Syria for $2 billion. "The center of globalization has been shifting east and the latest events are likely to compound this," Dardari said.

The government is looking to boost trade with the outside world through membership of the World Trade Organization, but progress there has been stalled by the United States for political reasons.

An indication of the government's determination to join the world trade body is its decision, in line with membership stipulations, to raise the price of diesel by 250%, the impact on consumers' wallets being ameliorated by an increase in the average public sector wage by 25%, or $80 per month. The net result has been the addition of $20 million to the state treasury.

Attempts are also being made to bring economic legislation into line with modern practices, with dozens of economy-related laws decreed by the president this year. Imposition of the new laws, however, is patchy, with punitive action not always enforced.

At the First International Lawyers Conference held in Damascus earlier this summer, former mayor of London Sir Gavyn Arthur said that while Syria has been pointed in the right direction, "like any country it will be held back if it does not modernize its legal system".

Those who occupy positions responsible for putting new business laws into practice have worked all their lives in a culture that until now has rewarded guile over intellect. Corruption remains a major stumbling block to developing efficient businesses, and entrepreneurship is far from widespread.

Even so, the number of self-employed is growing, according to newspaper reports, rising by 200,000 over the past four years in a working population of 7.9 million. Dardari signaled that further reforms in the state's role in the economy was necessary.

Also hindering growth is a brain-drain to other countries in the region, notably in the Gulf or Egypt, as individuals seek work outside Syria. This loss of skills is perpetuated as wealthier families send their children overseas for better education than can be provided at home. The consequence is a curb on local development and a shortage of employment opportunities - a mismatch of skills means joblessness among young people is as high at 18% in an overall unemployment rate Dardari puts at 8%.

"Most businesses are thirsty for labor," said Dardari. "It is not that the economy is not generating enough jobs, it is. But such businesses require a different set of skills and this, providing a competent workforce, is what we must pursue."

The government is now trying to encourage blue-collar Syrian workers to return home, even though wages there are much less than what can be earned in Riyadh or Dubai. One million seasonal workers travel to and from Lebanon, and many more, often well-educated, are employed in the Gulf region.

Internally, the government aims to retrain 22,000 school teachers and introduce new curricula next year, with business and entrepreneurial practices on the timetable. It was announced during Sarkozy's visit to Damascus that French is to become mandatory in high schools,

Syrian universities are also upgrading, with dozens of research agreements in technology, humanities and health science signed with universities in France, Italy, China and India. Dardari, asked where education ranked in terms of importance to the country's development, simply held up his index finger.

Improving education, promoting initiative-taking skills and liberalizing the economy will be increasingly essential in a country whose population of 20 million has a median age of 21. The government, meanwhile, struggles to maintain subsidies that absorb 19% of GDP as oil revenue falls.

Tourism, already contributing a forecast 6% of GDP this year, is being looked to as a future important money earner. Syria is awash with sites and ancient monuments such as Crac Des Chevaliers, a huge hilltop castle from crusader times; a 20,000-seat Roman amphitheater at Busra on the Syrian-Jordanian border, and desert ruins dating back millennia in Palmyra. The Silk Road city of Aleppo, famed for its maze-like underground souqs (markets), is another potential crowd-puller.

On the Mediterranean coast, $15 billion in private and state funds is to be invested in developing exclusive resorts, infrastructure and increasing the number of hotel beds. The Intourist-Sinara group, a Russian consortium, is to build a 900-bed hotel complex five kilometers north of the coastal city of Lattakia. Smaller developments in the form of individual houses suitable as holiday or retirement homes are appearing in such places as Samrya, an idyllic cove on the Turkish border.

The old quarters of Damascus, the oldest continuously inhabited city in the world, will soon host two 5-star hotels if the Agha Khan Development Network, a group of agencies engaged in microfinance and rural development, is given the go ahead.

Most visitors at present come from the Gulf along with day-trippers from Lebanon, but the number of European tourists to Syria is growing rapidly, according to Dardari. Ambitiously, given the US antipathy to Syria, one of the government's boldest attempts to promote the country as a tourist destination has been through advertising its potential on American television earlier this year.

Washington, however, retains its suspicions of the country, as President George W Bush made clear in his speech to the United Nations on September 24 when he singled out Syria along with Iran for reproach as sponsors of terrorists.

In early May, sanctions already in place since 2004 were reinstated by the US State Department for another four years, largely as a result of Syria's perceived ties with groups such as Hamas and Hezbollah. Essentially, this means products with over 10% American-made content cannot be sold to Syria. So far, European states have refused to sanction Syria.

In line with that hands-off approach, representatives of European aircraft manufacturer Airbus visited Damascus on September 25. Dardari said he expects Syria to secure a deal to buy up to 50 aircraft over the coming decades.

The government, meanwhile, is looking to put its own house in order, particularly in regard to spending and inflation. Government representatives have said the current budget deficit, which stands at 10% of GDP is the single biggest problem facing the country. Not far behind is inflation. An influx of 1.4 million refugees from Iraq since 2003, with their demands for housing, fuel and food has helped to drive up the cost of living for most Syrians. In part consequence, inflation is expected to touch 8% for 2008.

Dardari insists reform of the especially dysfunctional public sector is needed to solve this. "This is something that will have to come from the top and will not be easy given the job security the sector offers such a large number of the Syrian public."